DaVita vs. Encompass Health: Which Healthcare Stock Is a Better Buy in 2026?

DaVita reported FY 2025 revenue of nearly $13.6B, up 6.5%, but net income fell to about $746.8M and margins were only 5.5% amid high reimbursement and cybersecurity risks. Encompass Health posted stronger growth, with FY 2025 revenue of about $5.9B, up 10.5%, and net income of roughly $566.2M, lifting net margin to nearly 9.5%. The article favors Encompass Health for 2026 because of its better growth, margins, and expansion plans, despite both companies’ dependence on Medicare reimbursement.

Analysis

EHC is the cleaner operating leverage story: modest top-line acceleration is translating into meaningfully better margin capture, which matters more than headline growth in a reimbursement-constrained healthcare subsector. The market is still treating both names as “government-payor utilities,” but EHC’s mix of expansion, tighter capital intensity per incremental bed, and better conversion of growth into free cash flow suggests a widening quality premium rather than a cyclical re-rate. That premium can persist if management keeps opening facilities on schedule and avoids Medicare rule slippage.

DVA’s more interesting second-order issue is not demand — dialysis demand is structurally sticky — but margin elasticity to patient mix and operational friction. A cyber incident in a billing-heavy business can create delayed cash collection, temporary write-offs, and working-capital drag that show up after the headline event fades. In a name with already thin margins and a leveraged balance sheet, even small reimbursement or staffing pressures can overwhelm low-single-digit revenue growth.

The consensus is probably underestimating how bifurcated these two models are. DVA is priced like a mature cash cow, but its risk profile looks more like a regulated operator with episodic execution shocks; EHC, by contrast, is getting treated as a premium multiple despite still having room to compound through density and bed additions. The asymmetry is that EHC’s growth can disappoint without breaking the thesis, while DVA’s downside can compound quickly if mix or reimbursement turns even slightly adverse.

On timing, the next 2-3 quarters matter more than the next 2-3 days: EHC likely needs one more clean guidance/volume print to force further multiple expansion, while DVA needs evidence that post-cyber operational normalization is durable. If policy headlines turn unfavorable, both sell off, but DVA should underperform because its earnings base has less cushion.

Key Decisions for Investors

• Go long EHC vs short DVA in a 6-12 month pair trade; thesis is EHC’s margin expansion and unit growth should outperform DVA’s low-growth, reimbursement-sensitive profile.
• Buy EHC on any 5-8% pullback after earnings or guidance updates; target a 12-18 month hold with upside from continued bed openings and operating leverage, but cap risk if Medicare policy commentary worsens.
• Avoid initiating new DVA longs here; the cleanest short window is any post-rally extension back toward premium valuation, with a 3-6 month horizon and downside tied to margin compression or lingering cyber-related execution issues.
• For more tactical exposure, consider an EHC call spread financing a DVA put spread over the next two earnings cycles; this expresses the relative-quality trade while limiting outright sector/regulatory risk.
• If policy risk escalates, trim both and rotate into less reimbursement-dependent healthcare operators; DVA should be reduced first because its earnings sensitivity to mix and operating disruption is materially higher.